Annual Pace of Housing Starts in Canada Slowed in September

The annual pace of housing starts in September fell compared with August as they continued to slow from their highs reached earlier this year. Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts in September was 251,151 units, down 4.4% from 262,754 in August.

CIBC senior economist Royce Mendes said the slowdown was roughly in line with expectations. “While that’s well off the peaks seen earlier this year, it’s still stronger than the pre-COVID trend of just above 200,000,” Mendes wrote in a note to clients. “Demand for housing in Canada remains strong, but permits have been slowing lately, potentially due to supply constraints for both labour and materials.”

The drop in September came as the annual pace of urban starts fell 4.5% to 223,055. The annual rate of urban starts for apartments, condos and other types of multiple-unit housing projects dropped 4% to 165,861, while the rate of single-detached urban starts fell 5.9% to 57,194 units.

CMHC estimated rural starts at a seasonally adjusted annual rate of 28,096 units. The six-month moving average of the monthly seasonally adjusted annual rate of housing starts was 271,068 in September, down from 284,757 in August.

“The six-month trend in housing starts declined from August to September, with total starts continuing to pull back from their earlier 2021 levels,” said Bob Dugan, CMHC’s chief economist. “Single-detached and multi-family SAAR starts were both lower in Canada’s urban areas in September, which led to a decline in overall SAAR starts for the month. On a trend and monthly SAAR basis, however, the level of housing starts activity in Canada remains high in historical terms. Among Vancouver, Toronto and Montreal, Vancouver was the only market not to register growth in total SAAR starts in September, due to a decline in the multi-family segment.”

Source: Globe and Mail
Source: The Star
Source: CMHC

Canadian Home Sales Edge Up on Month-Over-Month Basis for First Time Since March

The Canadian Real Estate Association says September home sales edged up on a month-over-month basis for the first time since March. The association said that home sales for the month amounted to 48,949, their second-highest ever for September and a 0.9% increase from 48,498 in August.

Fifteen of the 26 markets CREA tracks saw a rise in sales in September. However, sales were down 17.5% from September 2020, when a record was reached for the month.

The numbers indicate that the country’s housing market remains strong because the level of sales in September were still about 10% above pre-COVID levels and 16% higher than the average set over the last decade, said Robert Kavcic, a senior economist at BMO Capital Markets. “One can’t help but feel as though the Canadian housing market is walking on tinder again, with demand holding at historically high levels, listings getting quickly absorbed, and price growth running steady near a 20% pace,” Kavcic said in a note to investors.

His comments came as CREA said the number of newly listed properties in September totalled 65,211, a 1.6% fall from 66,293 in August.

The national average home price was $686,650 in September, up 13.9% from $602,657 last year. Excluding sales in Greater Vancouver and the Greater Toronto Area, two of the country’s busiest and most expensive markets, cuts more than $146,000 from the national average price. “There has been no relenting in price pressure,” Kavcic said. “In fact, the dial might be turning hotter again as we speak.”

The Multiple Listing Service Home Price Index, he pointed out, rose 21.5% year-over-year, which is down from its 2020 high of 24.7%.

Month-to-month gains are “gathering steam again,” according to Kavic. “However you want to dice it, the broad Canadian housing market appears to be operating with 15% to 20% growth, and no sign of cooling down,” he said.

CREA found year-over-year price growth is creeping up above 20% in B.C., though it is lower in Vancouver, and said such gains are in the mid-to-high single digits in Alberta and Saskatchewan and low double-digits in Manitoba. Ontario saw year-over-year price growth hit about 25% in September, New Brunswick is just above 30% and Newfoundland and Labrador sits at roughly 12%.

Despite the price growth, CREA’s senior economist saw some positivity in the numbers. “The small changes observed in most key housing market metrics over the last couple of months suggest that the worst of the pandemic-related volatility we’ve experienced since last spring is in the rear-view mirror at this point,” Shaun Cathcart said in a statement. “Having said that, given we are still stuck at around two months of inventory nationally, the thing to keep a close eye on going forward will be the behaviour of prices.”

Source: Globe and Mail
Source: The Star
Source: Financial Post
Source: CREA

Small Towns Could Face Even Bigger Housing Bust then the Cities Red Flagged by CMHC

Canada’s housing agency caused a stir in September when it warned of a high risk of correction in home valuations. The Canada Mortgage and Housing Corp. raised its market risk assessment to high from moderate for only the second time, the last being during the 2016/17 housing boom. “The detection of price acceleration at the national level, alongside persistent overvaluation imbalances, prompted the change,” it said in the assessment.

A host of factors have helped bolster Canada’s economy, including low interest rates, fiscal support, a global economic recovery and increasing vaccinations. But it is not enough to explain the steep acceleration in home prices, said the CMHC. It flags Toronto, Hamilton, Ottawa, Montreal, Moncton and Halifax as highly vulnerable to price correction.

The CMHC has been wrong before. During the pandemic it predicted an 18% crash in home prices. They have since surged more than 20%.

Stephen Brown, senior economist for Canada at Capital Economics, says while that miscall might prompt some to ignore the latest warning, it’s hard to argue against it. In fact Capital would take it one step further. Brown says smaller cities face even bigger risks that the large centres covered in the CMHC assessment.

Low mortgage rates have boosted affordability by about 10% during the pandemic, but prices in some smaller centres have soared by more than 30%, said Brown. Such price hikes have been explained by the increased demand of remote workers seeking larger living spaces outside big cities. But Brown points to three concerns about the small town housing boom.

  1. Even though demand remains higher than before the pandemic, it is likely to decline as the economy normalizes.
  2. Unlike big cities, smaller centres have had room to build more homes to meet this demand. Housing starts in Canada over the past 12 months hit a record high, but not in Toronto, where they are needed most.
  3. Recent moves in the bond market suggest that mortgage rates are set to rise.

Capital expects prices to start falling in smaller centres in the second half of 2022. National home price gains should continue because a rebound in immigration will support demand in big cities, but the economists expect even that to fall to just 2% growth in 2023.

Source: Financial Post

One Million New Homes Needed in Ontario in Next 10 Years to End Cruel Game of Musical Chairs

With Ontario’s population growing rapidly, one policy think tank argues that Canada’s most populous province will need about one million new homes over the next 10 years. Ottawa-based Smart Prosperity Institute and Ontario Home Builder’s Association arrived at the near-million home figure after exploring how many homes and what types of homes would be needed to reach the needs of the anticipated 2.27 million more people who will reside in the province over the next 10 years, according to the Ontario Ministry of Finance.

The report determined that 910,000 homes will be needed for new families, 65,000 units will address current supply gaps in the market, and 25,000 would provide a cushion for any other unexpected additional population growth during this period. Of the 910,000 units for new households primarily for couples planning on having children, the report projects that 195,000 will reside in high-rise apartments and the remaining 715,000 will live in all other forms of housing.

“The goal of building one million new homes in the next 10 years presents a challenge for Ontario,” said Mike Moffatt, the senior director of policy and innovation at Smart Prosperity Institute. “However, the prize is substantial: ensuring an adequate supply of high-quality available and attainable housing, while at the same time driving economic prosperity and enabling climate action. Failure to do so will make it impossible for Ontario to attract and retain the talent it needs to compete in the global economy.”

Supply crunches in the Greater Toronto Area (GTA) put severe upward pressures on house prices, fuelling an 18.3% year-over-year boost in average selling prices in September real estate data. The average cost of a home now rests at $1,136,280, according to data from the Toronto Regional Real Estate Board (TRREB). The board called on the governments of all levels to address this housing supply issue, which they argue stands at a ‘critical juncture’.

A report by RBC Economics found that while there has never been more housing units under construction in Canada over the past 12 months, these gains were notably absent in places like Toronto. The city’s housing starts rose by only 1.4% (or 500 units) compared to the 2015 to 2019 average. This falls short of the national housing building growth of 26% compared to the pace established between 2015 and 2019.

Surging house prices are prompting a number of young families to drive until they qualify, the report found. Between July 2019 and July 2020, 60,000 people left the City of Toronto and Peel Region for other parts of the provinces.

“Ontario’s housing market is a bit like a cruel game of musical chairs where more and more people, and in particular young families looking for room to grow, are leaving more expensive cities and scattering across the province in search of housing,” said Mike Collins-Williams, chief executive officer of the West End Home Builders’ Association. “We need more housing supply and choice in communities across Ontario. The one million new homes that are needed over the next decade to respond and support young families can only happen if municipal councils approve the necessary mix of housing options in their communities.”

Source: Financial Post

What Canadian Housing Crisis?

The general narrative around housing in Canada points to worsening housing affordability as of late. Implicit in the argument is the assumption that owning or renting a house was perhaps affordable in the past. Many fear that rising housing prices have pushed the dream of homeownership out of reach for many young Canadians, but perhaps that’s not really a new development.

“(If) you don’t own a house by now, there’s a strong chance you never will. That’s the central, disturbing fact about the most widespread — and least understood — social revolution of our times.” Those words resonate today with most Canadians who are dismayed by rapidly escalating housing prices and rents. But here’s the catch: they were written 55 years ago in Maclean’s magazine.

The magazine’s May 1967 issue carried a detailed expose of the deteriorating state of housing affordability in this country. “(The) idea of a separate house for every middle-class Canadian family is just about extinct,” the story continued. “Suddenly, no one can afford it any more.”

Housing prices in the late sixties, of course, were a fraction of what they are today. For example, the average price of a house in Vancouver in 1966 was $15,200. In desirable parts of the city such as West Point Grey, the average price was $42,000. Rents were also deemed unaffordable. Two-bedroom units in trendy Vancouver neighbourhoods rented for $250 or more. 

Housing was even more expensive in the East. The average price in Toronto was expected to be more than $30,000 in 1967, a jump from $20,000 in just two years, Maclean’s reported. In the Maritimes, housing challenges were even more acute. The average price of a new home in Halifax touched $30,000 in the late sixties. Those prices sound reasonable today, but they weren’t considered so at the time.

Canada’s housing crisis goes back even further. “The truth is that throughout the 20th century Canada has been in the midst of a continuous housing crisis,” Albert Rose, a professor at the University of Toronto, wrote in Canadian Housing Policies, his 1980 book chronicling the state of housing from the 1930s to the 1970s. He observed that even from 1920 to 1945, Canada had not done enough to meet “the human and statistical criteria for decent and adequate housing accommodation.”

Housing, in general, has been in a state of continuing crisis, but housing affordability has gone through various ups and downs, at least since the 1990s. What differentiates housing markets since the 1990s is the gradual and sustained decline in interest rates that have kept average mortgage payments at less than 40% of average income. Thus, even when housing prices climbed at an unprecedented rate, the accompanying decline in interest rates kept mortgage payments relative to income in check.

The reasons behind the country’s housing challenges have also remained similar for more than half a century. Housing supply and the scarcity of developable land is a challenge today, but it was also a challenge back in the fifties when most Canadian cities had consumed the available serviced land for development.

Local governments are required to have a running inventory of serviced land to accommodate future growth. For example, municipalities in the Greater Toronto Area are required to maintain a minimum three years’ worth of continuous supply of vacant registered and draft approval lots. Yet a report from Ryerson University’s Centre for Urban Research and Land Development concluded that “an insufficient supply of serviced lots is the primary reason why the supply of new ground-related housing in the GTA has fallen short of demand.”

The housing crisis has persisted in Canada to a large extent because of supply-side failures. A fresh approach to rationing land for new development is needed to avoid another 50 years of housing failure.

Source: Financial Post